1. Chapter 6 Arial Online Auctions, Virtual Communities, and Web Portals

2. Objectives Origins and key characteristics of the seven major auction types Strategies for Web auction sales and auction-related businesses Virtual communities and Web portals

3. Auction Origins Earliest written records are from Babylon and date from 500BC Auctions became common activities in 17 th century England 18 th century saw birth of two British auction houses which are still major auction firms today British settlers in colonies brought auctions with them

4. English Auction Starting at a low price Bidding increases until no bidder is willing to bid higher

5. Dutch Auction Starting from a high price Bidding automatically decreases until the bidder accepts the price –Example: Coldwater Creek uses Dutch auctions to sell closeout items on its site

6. First-price sealed bid auction Secret bidding process The highest bidder pays the amount of the highest bid

7. Second-price sealed bid auction (Vickery Auction) Secret bidding process The highest bidder pays the price of the second-highest bid

8. Double auction (open-outcry) Buyers and sellers declare combined price-quantity bids The auctioneer matches seller offers (lowest to highest) with buyer offers (highest to lowest) Buyers and sellers can modify their bids based on knowledge gained from other bids

9. Double auction (sealed-bid) Buyers and sellers declare combined price-quantity bids The auctioneer (specialist) matches seller offers (lowest to highest) with buyer offers (highest to lowest) Buyers and sellers cannot modify their bids

10. Reverse auction (seller-bid) Multiple sellers submit price bids to an auctioneer that represents a single buyer Bids are for a given amount of a specific item that the buyer wants to purchase Prices go down as the bidding continues until no seller is willing to bid lower

11. Online Auctions and Related Businesses General Consumer Auctions Specialty Consumer Auctions Consumer Reverse Auctions and Group Purchasing Sites Business-to-Business Auctions Business-to Business Reverse Auctions Auction-Related Services

12. General Consumer Auctions eBay

13. Most common format is a computerized version of the English auction –eBay English auction allows sellers to set a reserve price eBay also offers: –Private auctions –Dutch auctions –Proxy bidding eBay’s success is due to: –First-mover-advantage –Advertising ($100 million annually) Competition: –Yahoo! Auctions –Amazon.com

14. Specialty Consumer Auctions Online auctions that identify special- interest market targets and meet the needs of those targets Examples include: –uBid –PotteryAuction.com –JustBeads.com –StubHub –Cigarbid.com –Golf Club Exchange –Winebid

15. Consumer Reverse Auctions and Group Purchasing Sites Consumer Reverse Auctions –Online auctions where the buyer (bidder) specifies what he/she is looking for then merchants contact the buyer with offers to supply the item at a particular price –Often called a “reverse bid” –The buyer can then accept the lowest offer or the offer that best meets his/her needs –Example: –Respond.com Group Purchasing Sites –Seller posts an item with a price and as more bids for that item are made the site negotiates a lower price with the item’s provider for the multiple buyers –Effect much like a consumer reverse auction –Examples: –Mercata (Closed in 2001) –LetsBuyIt.com

16. Business-to-Business Auctions Business-to-Business Auctions evolved to meet a specific existing need: –A way to dispose of unusable or excess inventory Large businesses usually create their own auction site to sell excess inventory –Examples: »Ingram Micro »CompUSA Auctions Smaller businesses usually sell their excess inventory through a third-party auction site –Examples: »DoveBid »GB RetailExchange »SmartBargins.com

17. Business-to-Business Auctions Online securities exchanges are posing a threat to time-honored organizations such as the NYSE and Chicago Board of Trade –The International Securities Exchange Funded by electronic brokers »E*Trade »Ameritrade –ArcaEx These and others pose a threat to physical securities exchanges because of their lower fees Hospital and other organizations are now using online auctions to fill temporary employment openings –Example: BidShift sells software to companies that lets them operate their own shift auctions

18. Business-to-Business Reverse Auctions Work the same as Consumer Reverse Auctions Suppliers bid to supply a company with a product These auctions are debated widely in the business world today –Supply Chain Characteristics that Support: Supplies are highly competitive Product features can be clearly specified Suppliers are willing to reduce the margin they earn on this product Suppliers are willing to participate in reverse auctions –Supply Chain Characteristics that Discourage Product is highly complex or requires regular changes in design Product has customized features Long-term strategic relationships are important to buyers and suppliers Switching costs are high

19. Auction-Related Services Auction Escrow Services –Independent party holds a buyer’s payment until the buyer receives the product –Some take the delivery and inspect the product for the buyer –Most escrow agents are appraisers who are qualified to judge quality –Escrow services charge a fee ranging from $5 to $50

20. Auction-Related Services Auction Directory and Information Services –Offer guidance for new auction participants –Some offer e-mail newsletters relating to the online auction industry –Some offer a search engine that specializes in auction sites –Some offer information about the market value of a wide variety of products

21. Auction-Related Services

22. Auction Software –Buyers and sellers both use software to help manage their online auctions –Sellers use software that automate tasks such as image hosting, advertising, and page design –Buyers use software to place bids or many products at once

23. Auction-Related Services Seller software –Andale –AuctionHawk –Vendio Buyer software –Cricket Sniping Software

24. Auction-Related Services Auction Consignment Services –Companies take items people and crate an online auction for that item –They also handle the transaction and –A small fee is taken out of the profits ranging from 10 to 40 percent

25. Auction-Related Services

26. Virtual Communities and Web Portals Mobile Communications Technology –Notebooks, PDAs, and mobile phones can be connect to the internet via satellite communication technology –Wireless Application Protocol Allows HTML web pages to be viewed on devices with small screens

27. Virtual Communities and Web Portals Intelligent Software Agents –Programs that search the Web and find items that meet the buyer’s specifications –Different software agents focus on different product categories –Agents can also track the ratings of buyer and seller reputations

28. Virtual Communities and Web Portals Virtual Communities –A gathering place with no physical existence –Usenet news groups, chat rooms, and web sites –Virtual Learning Community Blackboard –Google Answers People can have their questions answered by an expert

29. Virtual Communities and Web Portals Early Web Communities –WELL Whole Earth Lectronic Link Began as a dialog among the authors and readers of the Whole Earth Review in 1985 Members pay a monthly fee to participate Salon.com purchased WELL in 1999

30. Virtual Communities and Web Portals Web Portal Revenue Models –Advertising-Supported Web Portals Nielsen/NetRatings –High visitor counts can yield high advertising rates for these sites The demographic information provided by portals makes the potential for targeted marketing very high

31. Virtual Communities and Web Portals Web Portal Revenue Models –Mixed-Revenue Web Portals Time Warner’s AOL unit –Charges a fee while running advertising on the site Many portals struggling with advertising have started to use fee based revenue as well

32. Virtual Communities and Web Portals Web Portal Revenue Models –Internal Web Portals Used by large organizations to provide information to employees Can save money by replacing paper memos and newsletters Can create a Q & A page